Question

Managers can use margin of safety to assess the _______ to the company when there is a possibility of __________ 1. a change in target sales. 2. a large decrease in sales. 3. higher than expected operating income. Making this assessment helps managers:1. accurately calculate a product's contribution margin. 2. choose a realistic target profit.3. make informed decisions.

Answer 1

Answer:

1. a change in target sales and 2. choose a realistic target profit.

Explanation:

When a manager looks into the margin of safety he is seeing the difference between current or forecasted sales and break-even point of sales. If that difference becomes negative, the product becomes unprofitable. That’s why the margin of safety is an important data to use in target sales, with that a manager can adjust accordingly and make a liquid profit from a product or decide to stop producing it.